Firms face fallout after Indian bomb test

US sanctions imposed on India in response to the country's recent nuclear tests could cost the country around $350bn and hit the telecom and power sectors hardest, Milbank Tweed Hadley & McCloy's Singapore office says in a report.

The report was written by Gary Wigmore, the head of Milbank's Singapore office, and project finance lawyers Renisha Mulchandani and Arvind Vij. It warns that sanctions have not only forced the US Export-Import bank to shut down its Indian operations, but will also prevent private US banks making loans to the Indian government and possibly also to government-owned banks.

The sanctions also force the US to use its vote on international financial institutions like the World Bank and the Asian Development Bank to oppose extending loans to India.

The US alone does not have a veto on any international financial institution, but if it is joined by Germany and Japan it could stop all Indian loans by the World Bank – and stop its plans to lend over $3bn this year. The World Bank is already financing 84 projects in India worth $14.5bn.

Power projects will be worst affected by sanctions, the report says, as nearly 40 per cent of these projects have either US-based promoters or contractors. The same applies to telecom companies who will be looking for international finance to develop their networks.

Most of the $52m India receives in development aid from the US will also be cut off leaving only aid for food and agricultural assistance.